KuCoin market share halves alongside $1.2 billion in outflows after DOJ indictment and CFTC charges

Following charges from the U.S. Department of Justice and Commodity Futures Trading Commission last week, crypto exchange KuCoin KCS -0.66% has seen its market share by daily trading volume halve, according to a report from blockchain research and analytics firm Kaiko.

Daily volume fell around 75% from $2 billion — before the back-to-back charges on March 26 — to $520 million.

When the announcements were made, this caused a surge in users wanting to get their tokens off the platform, resulting in slower withdrawal times. KuCoin announced an $8.95 million airdrop program for users who experienced this withdrawal congestion, as well as a larger planned airdrop for users who didn’t withdraw any assets during the period. However, the incentive was not enough to stop KuCoin’s market share more than halving from 6.5% to 3%, per Kaiko data.

KuCoin trade volume and market share. Image: Kaiko.

Onchain data suggests KuCoin users have been moving funds to rival crypto exchanges, including Coinbase, Binance and OKX, which they perceive as safer options, the Kaiko analysts argued, as well as their own self-custodial wallets. Some of the outflows may also be attributed to market makers leaving the exchange, the analysts noted.

KuCoin sees over $1.2 billion in outflows

Outflows from KuCoin-labeled wallets amounted to $600 million on March 26 alone, significantly outpacing inflows and consisting of mainly ether and USDT. However, the analysts said it was important to note that the flows only included onchain transactions between Kucoin and other exchanges or wallets and not those made between Kucoin addresses.

KuCoin wallet flows. Image: Kaiko.

Data from blockchain analytics platform Nansen shows net daily outflows since March 26 now total $1.21 billion.

KuCoin daily net flow. Image: Nansen.

DOJ and CFTC charges against KuCoin

Last week, the U.S. Department of Justice alleged KuCoin and two of its founders, Chun Gan and Ke Tang, had violated anti-money laundering laws, claiming it allowed the platform to be used to launder over $9 billion. The indictment claimed KuCoin deliberately avoided U.S. AML and KYC regulations by "falsely representing that it had no U.S. customers when, in truth, KuCoin had a substantial U.S. customer base."

For example, from August 2022 to November 2023, about 197 KuCoin deposit addresses indirectly or directly received $3.2 million worth of crypto from virtual currency mixer Tornado Cash, which has been placed on a sanctions list, the DOJ said at the time.

"KuCoin is operating well, and the assets of our users are absolutely safe," the exchange responded. "We are aware of the related reports and are currently investigating the details through our lawyers. KuCoin respects the laws and regulations of various countries and strictly adheres to compliance standards."

The Commodity Futures Trading Commission also filed a parallel civil action on March 26 against KuCoin, alleging it illegally operated a digital asset derivatives exchange. The CFTC is seeking disgorgement, civil monetary penalties, permanent trading and registration bans as well as a permanent injunction against future violations.

‘No direct interaction’ between KuCoin and Tornado Cash

Despite the DOJ’s claims, Kaiko found no direct interaction between KuCoin and Tornado Cash on the Ethereum blockchain.

However, funds stolen from the exchange following a $280 million hack in 2020 were subsequently “privatized” using the crypto mixer, involving a significant amount of ether, the analysts noted.

Stolen ether from KuCoin transferred to Tornado Cash. Image: Kaiko.

“Although Kucoin managed to keep its market share relatively stable throughout last year’s bear market, the recent charges and outflows may pose a significant challenge to the exchange’s future growth,” the analysts added.